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SEC Mulls More Disclosure for ESG Funds

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What You Need to Know

  • Chairman Gensler asks staff to consider recommendations for disclosure of criteria and data underlying investments.
  • Gensler also questions the current naming conventions for funds more generally.
  • He also wants staff to study disclosures about diversity at the board and senior management levels of asset managers.

The Securities and Exchange Commission is concerned about the lack of clarity in the sustainable investing fund universe and is considering requiring more disclosure about the criteria and data funds use as well as new naming conventions.

“When it comes to sustainability-related investing … there’s currently a huge range of what asset managers might mean by certain terms or what criteria they use,” SEC Chairman Gary Gensler said before Wednesday’s Asset Management Advisory Committee meeting.

He described the variety of investment approaches used by funds and the assertions they make — screening out industries such as fossil fuels and tobacco, claiming minimal greenhouse gas emissions from their corporate assets, using terms like “green” or “sustainable’” — usually without providing the criteria and data that underlie those terms and assertions.

“I think investors should be able to drill down to see what’s under the hood for these funds,” said Gensler, noting the lack of standardization of the labels that sustainable funds use.

With that in mind, Gensler said he is directing staff to consider recommendations about whether fund managers should disclose the criteria and underlying data they use and study current naming conventions for funds, which are largely based on investment types rather than investment strategies.

“It may well be a distinction without a meaningful difference,” Gensler said of current naming conventions.

He said updates to fund disclosures and to naming conventions “could bring needed transparency to the asset management industry, particularly in light of the significant growth in the sustainability area.”

According to The Forum for Sustainable and Responsible Investment (US SIF), there were 836 sustainable funds with $3.10 trillion in assets in the U.S. at the end of 2020.

Diversity in the Asset Management Industry

Gensler also asked staff to consider ways for the asset management industry to enhance transparency about diversity at the board and senior management level. The diversity subcommittee of the Asset Management Advisor Committee recommended more transparency as a first step to improving diversity in the industry. Such disclosure could include aggregated demographic data about a firm’s employees and owners and about its diversity and inclusion practices in hiring.

The committee also recommended, among its many suggestions, that the commission clarify the variety of factors that fiduciaries can use when selecting asset managers, beyond assets under management (AUM) and length of track record. Those two criteria often eliminate “nearly all asset management firms owned by women and people of color from consideration in the selection process for institutional asset management,” according to the subcommittee report.


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